Key Points:

While the Renewable Energy Target is now lower, it will still require substantial increase in renewable energy capacity over the next five years.

Australia's Renewable Energy Target for 2020 will be 33,000 GWhpa, following the passage on Tuesday night of the Renewable Energy (Electricity) Amendment Bill 2015.

The new target is significantly lower than the current target of 41,000GWh, but the passing of the Bill will end a period of uncertainty for the industry and is likely to result in increased activity.

What's the purpose of the Renewable Energy Target?

The RET was introduced as Federal legislation in 2000 in the Renewable Energy (Electricity) Act. In line with the Government's commitment that the equivalent of at least 20 percent of Australia's electricity would come from renewable sources by 2020, the RET was intended to require electricity retailers and other large electricity buyers to source an additional 2 percent of their electricity from renewable or specified waste-product energy sources by 2010.

The 2000 Act was revised in 2009 to be split into separate incentives for large-scale and small-scale generation, and contain escalating targets for the period 2010-2020.

Why is the renewable energy target being changed now?

The Government proposed changes to the RET in response to the key conclusions of the independent expert panel review chaired by Mr Dick Warburton into the operation, costs and benefits of the RET, which found that:

  • the RET had encouraged significant new renewable electricity generation (with an increase of almost 50%);
  • the RET was contributing to a large surplus of electricity generation capacity as a result of an unexpected decline of electricity demand which led to much lower electricity demand forecasts for 2020; and
  • the RET provided relatively high-cost emissions reductions.

The Bill was prepared following lengthy negotiations among the major parties, and submissions from industry groups, about what changes should be made to the RET.

The stated purpose of the Bill is to better reflect electricity market conditions, provide certainty to the renewable energy industry and enable sustainable growth in renewable electricity generation.

Key features of the Renewable Energy (Electricity) Amendment Bill 2015

The Bill makes the following changes to the Renewable Energy (Electricity) Act:

  • reduction of the profile of annual targets under the Large scale Renewable Energy Target (LRET) with a 2020 target of 33,000 GWh of renewable electricity instead of 41,000GWh;
  • introduction of a full exemption for the electricity used in emissions-intensive trade-exposed (EITE) activities to replace the current partial exemption; and
  • removal of the requirement for legislated biennial reviews of the RET.

Biomass back into the mix of renewable energy

The Bill also reinstated biomass from native forest wood waste as an eligible source of renewable energy. This change was the subject of much debate in the Senate – and subject to attempts by both Labor and the Greens to remove it – but ultimately it was made.

What does the changed RET mean for the renewable energy sector?

While the Bill advocates a reduction of the annual target of the RET, the target will still require substantial increase in renewable energy capacity over the next five years. As we've previously said, if the additional generation was met from wind turbines of 3MW rating with a capacity factor of 40%, an additional 1,420 wind turbines would be needed beyond those in operation in 2014. That is equivalent to another 10 wind farms the size of Macarthur Wind Farm, which is the largest wind farm in the South Hemisphere (with 140 turbines of 3MW capacity).

This scope for substantial increases in renewable development and the much needed certainty in the future of the RET (at least to 2020) provided by the Bill is likely to result in increased investment in the sector. Of course, State factors also play an important role, and recent changes to Victoria's planning laws affecting wind farms will no doubt help the sector's growth there.